www.gao.gov/cgi-bin/getrpt?GAO-04-793SP.

To view the full product, click on the link 

above. For more information, contact 

 A. Bruce Steinwald at (202) 512-7101 or 

steinwalda@gao.gov. 

Highlights of GAO-04-793SP

May 2004

HIGHLIGHTS OF A GAO FORUM

Health Care: Unsustainable Trends 

Necessitate Comprehensive and 

Fundamental Reforms to Control 

Spending and Improve Value 

The forum’s plenary speakers made the following observations regarding 

health care costs and value: 

• U.S. wealth and other factors drive health care spending: A nation’s 

wealth is the principal driver of its health care spending. However, 

wealth alone does not explain the high level of spending in the United 

States. Other influential factors include the pluralistic organization of the 

U.S. health care system and ambivalent attitudes toward rationing health 

care. While health care spending appears affordable for another decade 

or two, added spending over time will draw resources away from other 

economic sectors and could induce adverse economic implications for 

government, individuals, and other private purchasers of health care. 

• Unwarranted variation in medical practices nationwide points to 

quality and efficiency problems: Much of the nationwide variation in 

use of medical services has been attributed to differences in an area’s 

resources and capacity to provide health care. Despite the greater 

volume of care provided to patients in high-spending areas, they do not 

have better health outcomes or experience greater satisfaction with care. 

Payment reforms can foster delivery of care that is clinically proven to 

be effective. In addition, health care spending can be reduced by 

identifying and rewarding efficient providers and encouraging inefficient 

providers to emulate best practices. 

At the forum’s breakout sessions, participants discussed several promising 

cost containment and value enhancement strategies. The sessions focused 

on the merits and drawbacks of efforts to (1) make consumers more 

conscious of health care costs, (2) coordinate care for the nation’s costliest 

patients, (3) hold the appropriate parties accountable for the costs and 

benefits of their clinical decisions, and (4) ration technology without denying 

needed care. A common theme emerged from the four groups: namely, 

efforts to reward efficiency and achieve better health outcomes are 

dependent on a much more highly evolved information infrastructure than 

exists today. Collecting and maintaining the needed data would require 

political and financial support and a central, independent mechanism for 

setting standards and policies. Such structural changes are likely to take 

years to develop, but initiatives are under way to put promising strategies 

into practice. Commitment by all interested parties and political will are 

needed to achieve meaningful and sustainable results. 

Unrelenting growth in health care 

spending has put pressure on 

policymakers to seek health care 

system reforms. The stress comes 

partly from a wide gap in 

expectations between what health 

care Americans want and what the 

nation can afford and sustain. 

GAO’s Health Care Forum was held 

on January 13, 2004, to find ways to 

elevate the nation’s understanding 

of health care cost, access, and 

quality challenges. Forum 

attendees included a select group 

of experts, business leaders, and 

public officials. 

The forum’s plenary speakers 

discussed issues associated with 

health care costs and value, 

including spending drivers, longterm affordability, and the effect of 

differences across the country in 

medical practices. Participants in 

breakout sessions led by the 

forum’s faculty of experts 

deliberated on the merits of the 

various health care reform 

strategies, including 

• focusing on consumer cost 

sensitivity, 

• targeting high-cost patients, 

• reducing unwarranted 

variation in medical practices, 

and 

• managing technology to 

control spending growth. 

GAO has developed a series of 

questions to evaluate all health 

care reform proposals, based in 

part, on the results of this forum. 
Page i GAO-04-793SP Health Care Forum 

Letter 1

Introduction from the Comptroller General of the United States 1

U.S. Health Care Has Not Achieved Sustainable Cost, Broad 

Access, or Good Quality Systemwide 3

Containing Costs and Enhancing Value Are Key Challenges Facing 

the Nation’s Health Care System 8

Participants Discuss Strategies for Controlling Costs and 

Enhancing Value in Health Care 13

Comptroller General Presents Criteria for Evaluating Health Care 

Reform Proposals 25

Participants Share Views Through Informal Poll 27

Appendix I Forum Agenda 30 

Appendix II Forum Faculty and Participants 32 

Selected Bibliography 35 

Tables 

Table 1: Framework for Evaluating Health Care Reform 26

Table 2: Results of the Health Care Forum Poll 28

Figures 

Figure 1: National Health Expenditures as a Percentage of GDP 4

Figure 2: Medicare and Medicaid as a Share of GDP 5

Figure 3: Composition of Spending on Personal Health Care 

Services, Selected Years 6

Figure 4: Number of Uninsured Nonelderly 7

Contents 

This is a work of the U.S. government and is not subject to copyright protection in the 

United States. It may be reproduced and distributed in its entirety without further 

permission from GAO. However, because this work may contain copyrighted images or 

other material, permission from the copyright holder may be necessary if you wish to 

reproduce this material separately. 
Page 1 GAO-04-793SP Health Care Forum 

In carrying out GAO’s mission to help the Congress examine government 

spending and its fiscal sustainability over the long term, I am acutely 

mindful of the extent to which public programs financing health care—

particularly, Medicare—face serious challenges. Since the early 1990s 

when I served as a trustee of Social Security and Medicare, I have been 

concerned about the Medicare program’s fiscal health and long-term 

sustainability. My concerns have heightened as I examine GAO’s long-term 

budget simulations, which show a large and growing structural deficit due 

primarily to our imminent demographic tidal wave and rising health care 

costs. I am mindful, too, that the challenges posed by these trends affect 

public sector programs at all levels of government, especially the federal 

and state levels. In addition, employers and other private purchasers of 

health care services are finding that increasing health care spending poses 

a threat to their competitive position in an increasingly global market. 

Furthermore, rising health care costs have implications for overall tax 

revenues and individual employee cash compensation levels. 

Unrelenting growth in health care spending has put pressure on 

policymakers to seek fundamental health care system reforms. Part of the 

stress comes from a wide gap in expectations among patients, providers, 

and payers: what patients and providers expect is not well aligned with 

what health care programs are able to deliver. The public and private 

sectors can both play an important role in educating the public about the 

differences between wants, needs, affordability, and sustainability at both 

the individual and aggregate level. 

In this regard, GAO’s Health Care Forum was held on January 13, 2004, to 

find ways to elevate the nation’s understanding of health care cost, access, 

and quality challenges. (See app. I for the forum’s agenda.) Forum 

attendees included a select group of experts, business leaders, and public 

officials, who discussed the challenges associated with financing and 

delivering health care both now and in the future. (See app. II. for a list of 

participants.) Distinguished economists, practitioners, and other leading 

health care authorities served as faculty for the forum’s plenary and 

breakout sessions. (See the selected bibliography of pertinent articles and 

publications by the forum faculty.) 

These proceedings showcase the numerous and complex issues that must 

be addressed as we seek viable options to reforming the nation’s “at-risk” 

health care system. Convening discussions on these issues is a first step 

toward obtaining public acceptance of the need for comprehensive and 

fundamental changes. The next step is for the public, through open 

Introduction from the 

Comptroller General 

of the United States 
Page 2 GAO-04-793SP Health Care Forum 

dialogue, to encourage elected officials to address these issues promptly, 

directly, and effectively. 

I wish to thank all the forum participants for taking the time to share their 

knowledge, insights, and perspectives. We will use the knowledge gained 

from the day’s deliberations in our discussions with Members of the 

Congress. I look forward to working with the forum’s participants on 

important health care system reform issues in the future. 

David M. Walker 

Comptroller General 

 of the United States 
Page 3 GAO-04-793SP Health Care Forum 

Comptroller General Walker opened the forum with a presentation entitled 

“Health Care System Crisis: Growing Challenges Point to Need for 

Fundamental Reform.” In essence, he noted that the U.S. health care 

system is undergoing a period of growing stress. In today’s health care 

sector, there are few incentives for providers and consumers to be prudent 

in their ordering and use of health care services, too little transparency 

with regard to the value and costs of care, and inadequate accountability 

to ensure that health care plans and providers meet standards for 

appropriate use and quality. Both the public and private sectors are facing 

major challenges with regard to three fundamental and interconnected 

dimensions of the health care system—cost, access, and quality. 

Specifically, rising costs are becoming unsustainable, some Americans do 

not have access to basic care, and quality of care is uneven across the 

nation. The following are highlights of the Comptroller General’s 

presentation.1

Past cost containment efforts have not halted the rise in overall health 

care spending. From 1990 through 2000, spending from all sources—both 

public and private—nearly doubled in nominal dollars from about $696 

billion to about $1.3 trillion. From 2000 through 2010, rapid growth is 

expected to again double spending to an estimated $2.7 trillion in nominal 

dollars. The rapid growth in health care spending means that an increasing 

share of the nation’s output, as measured by gross domestic product 

(GDP), will be devoted to the production of health care services and 

goods. In 1970, health care spending represented about 7 percent of GDP. 

By 2010, that share is projected to reach about 17 percent of GDP. (See fig. 

1.) 

 1

 The figures in this section are based on the most recent data available at the time of the 

forum—January 2004. 

U.S. Health Care Has 

Not Achieved 

Sustainable Cost, 

Broad Access, or 

Good Quality 

Systemwide 

Health Care Expenditures 

Are Escalating 
Page 4 GAO-04-793SP Health Care Forum 

Figure 1: National Health Expenditures as a Percentage of GDP 

Note: The figure for 2010 is projected. 

In particular, public program obligations will be unsustainable for future 

generations of Americans. For example, by 2050, the ratio of workers to 

pay for each Medicare beneficiary will have dropped from about 4 to 1 

today to just about 2 to 1. In addition, Medicare and Medicaid will have 

more than doubled their share of the economy. (See fig. 2.) 

0

2

4

6

8

10

12

14

16

18

1970 1980 1990 2000 2010

Percentage of GDP

Sources: Centers for Medicare & Medicaid Services, Office of the Actuary, National Health Statistics Group; and U.S. 

Department of Commerce, Bureau of Economic Analysis.
Page 5 GAO-04-793SP Health Care Forum 

Figure 2: Medicare and Medicaid as a Share of GDP 

Notes: Projections based on the intermediate assumptions of the 2003 Trustees’ Reports, CBO’s 

August 2003 short-term Medicaid estimates, and CBO’s March 2003 long-term Medicaid projections. 

At the same time that health care spending has increased, consumers have 

become more insulated from these escalating costs. In 1962, nearly half—

46 percent—of health care spending was financed by individuals out of 

their own pockets (see fig. 3). The rest was financed by a combination of 

private health insurance and public programs. By 2002, the amount of 

health care spending financed by individuals’ out-of-pocket spending—

spending at the point of service—was estimated to have dropped to 14 

percent. 

0

2

4

6

8

10

12

14

16

2000 2010 2020 2030 2040 2050 2060 2070

Medicaid

Medicare

Percentage of GDP

Sources: Centers for Medicare & Medicaid Services, Office of the Actuary; and the Congressional Budget Office (CBO).
Page 6 GAO-04-793SP Health Care Forum 

Figure 3: Composition of Spending on Personal Health Care Services, Selected Years 

Notes: The figure for 2002 is estimated. Out-of-pocket spending includes direct spending by 

consumers on coinsurance, deductibles, and any amounts not covered by insurance. Out-of-pocket 

premiums paid by individuals are not counted here but are counted as part of private health 

insurance. 

Tax preferences also shield individuals with health insurance from the full 

brunt of health care costs. Tax considerations encourage employers to 

offer health insurance to their employees, as the value of the premium is 

excluded from the calculation of employees’ taxable earnings. Moreover, 

the value of the insurance coverage does not figure into the calculation of 

payroll taxes. These tax exclusions represent a significant source of 

forgone federal revenue—over $100 billion—masking the full cost of 

providing health benefits. Tax preferences work at cross-purposes to the 

goal of moderating health care spending. 

To moderate health care spending in both sectors, we will need to look at 

broad payment system reforms. For both public and private payers, 

containing growth in health expenditures will be an abiding 21st century 

challenge. 

1962 1982 2002 est.

Private health insurance

Medicaid

Medicare

Other public

Other private

46% 

23%

 25%

 16% 

22%

30%

10%

16%

14%

37%

16%

16%

12%

Source: Centers for Medicare & Medicaid Services, Office of the Actuary, National Health Statistics Group.

Out-of-pocket

6% 5%

 6%
Page 7 GAO-04-793SP Health Care Forum 

Despite higher health care spending, the United States has not achieved 

broad access to coverage for basic levels of care. Tens of millions of 

Americans remain uninsured or underinsured. (See fig. 4.) 

Figure 4: Number of Uninsured Nonelderly 

Notes: Analyses of the Bureau of Labor Statistics and the U.S. Census Bureau Current Population 

Survey, Annual Demographic Supplements and Annual Social and Economic Supplement. Figures 

for 1999 through 2000 are from the Urban Institute and the Kaiser Commission on Medicaid and the 

Uninsured. The figures for 2001 through 2002 are from a GAO analysis of the Current Population 

Survey. 

Most nonelderly Americans without health insurance are lower-income 

working age adults. Many more individuals will become uninsured as 

states struggling with record budget shortfalls cut Medicaid enrollment. 

Most troubling is that health insurance may be out of reach for many of 

those who need it most—individuals in poor health. Even among insured 

individuals, coverage is uneven. Many of these individuals find that 

important services, such as long-term care and prescription drugs, are not 

covered or the coverage they have may be substantially limited. 

Although increased health care spending has likely led to much of the 

improvements in life expectancy and mortality, the United States 

continues to lag other nations in these and several other outcome 

measures. In 2000, the United States had an infant mortality rate of 6.9 

deaths per thousand live births. This was 23 percent higher than the infant 

mortality rate in the United Kingdom and more than twice as high as the 

Access to Basic Health 

Care Coverage Is Lacking 

for Many Americans 

Gains in Health Status and 

Quality Are Uneven 

39.0 38.4

40.9

43.3

0

10

20

30

40

50

1999 2000 2001 2002

Population in millions

Sources: GAO, Urban Institute, and the Kaiser Commission on Medicaid and the Uninsured.
Page 8 GAO-04-793SP Health Care Forum 

rate in Japan for that same year. The United States also exceeds other 

industrialized nations in the number of potential years of life lost, which is 

an indicator of premature mortality and preventable deaths. 

The United States has fostered quality of care through investment and 

achievement in medical science. Although advances in medical technology 

have unquestionably provided medical benefits, consumers are not as 

informed about the costs and benefits of health care as they may be about 

other goods and services. For many treatments, experts have developed a 

consensus on recommended use, but many patients do not receive these 

treatments at the prescribed frequency. Similarly, some services are 

overprescribed, providing little benefit and adding unnecessary costs to 

the health care system. Finally, higher health care spending has not 

translated to reduced medical errors. An oft-cited study by the Institute of 

Medicine estimates that deaths due to medical errors in hospitals are 

higher than deaths caused by automobile accidents, breast cancer, or 

AIDS. 

The growing challenges in the U.S. health care system point to the need for 

both comprehensive and fundamental reform, which grows increasingly 

acute as the nation’s long-term fiscal imbalance worsens. Thus, the issues 

of rising costs, inconsistent quality, and uneven access will need to be 

addressed simultaneously with system reforms and federal leadership on 

all fronts. 

Why does health care spending in the United States consume a greater 

share of the nation’s economy than in other countries? Is this level of 

spending affordable and sustainable? What is the value of the health care 

the nation purchases? How can spending be reduced without sacrificing 

value? These questions were the subject of the forum’s morning plenary 

sessions on health care cost and value. Presentations were given by Dr. 

Uwe Reinhardt of Princeton University and respondent Dr. Alice Rivlin of 

the Brookings Institution and by Dr. John Wennberg of Dartmouth Medical 

School and respondent Dr. Arnold Milstein of the Pacific Business Group 

on Health. The following is a summary of these presentations. 

Dr. Reinhardt presented his analyses of data from the Organisation for 

Economic Co-operation and Development (OECD), which show that U.S. 

spending on health care per capita continues to outpace other 

industrialized nations. For example, Canada, a country with a fairly 

similar health care delivery system and similar medical practices, spent 

Containing Costs and 

Enhancing Value Are 

Key Challenges 

Facing the Nation’s 

Health Care System 

U.S. Wealth and Other 

Factors Drive Health Care 

Spending 
Page 9 GAO-04-793SP Health Care Forum 

only 57 percent as much per capita as did the United States in 1999. 

Although the aging of the population is often cited as a driver of national 

health care spending, this claim is not supported by the data. According to 

Dr. Reinhardt, a nation’s wealth, as measured by GDP per capita, is the 

chief health care spending driver. A nation’s per capita GDP explains 

about 90 percent of health care spending differences across nations. 

Essentially, ability to pay drives consumption. 

However, Dr. Reinhardt noted that per capita GDP does not account for as 

much of health care spending in the United States as in other countries. 

Per capita GDP in the United States explained only $3,300 of the $4,800 

U.S. per capita spending on health care in 2001. Other influential factors 

include the organization of the U.S. health care system and attitudes 

toward health care rationing. 

Dr. Reinhardt observed that the U.S. health care system is highly 

fragmented among multiple payers, hundreds of thousands of providers 

often functioning in isolation, and patients with different levels of private 

and public coverage or no coverage at all. Such complexity and 

fragmentation drives up administrative expenses as well as care costs. 

Another contributor to spending, he continued, is the unwillingness of 

Americans, most of whom are insured, to ration health care. Good health 

insurance affords millions of Americans easy access to world-class health 

care facilities. (As an aside, he noted that these advantages have not 

translated into superior health status.) In principle, neither the public nor 

its policymakers are willing to deny care, regardless of whether it adds 

value to the individual or society. For example, he noted that the value of 

doing procedures such as hip replacements on patients in their mid-80s 

and older is highly questionable. For the significant minority of uninsured 

Americans, however, Dr. Reinhardt observed that the rationing of health 

care by price and ability to pay is manifest, especially for primary and 

secondary care, if not for tertiary care. 

Dr. Reinhardt explained why population age is not very significant as a 

cost driver of health care spending systemwide. The United States is a 

relatively young country compared with other OECD nations whose 

spending per capita on health care is significantly lower. Moreover, the 

growth in the proportion of the population over age 65 (an expensive 

demographic group in terms of health care) will be gradual, projected to 

rise less than 10 percentage points by 2050. Several simulations have 

shown that age and gender account for only a small percentage of 

predicted annual growth in spending on health care. Other research 

shows that much of the annual growth in national spending on health care 
Page 10 GAO-04-793SP Health Care Forum 

is driven by the same factors that drive increased per capita spending 

across all age groups. 

Dr. Rivlin provided commentary on Dr. Reinhardt’s presentation. On the 

topic of rationing in the United States, Dr. Rivlin noted that organ 

transplants should not be overlooked as one example: potential recipients 

of organ transplants are ranked in priority order according to clinical 

criteria. Nevertheless, the United States does not ration health care 

extensively, she noted, because we have not reached a point where the 

money spent on health care is considered not worth the investment. We 

are continuing to see gains as people are living longer and leading less 

impaired lives. On the topic of the aging population as a cost-driving 

factor, Dr. Rivlin pointed out that from a federal budget perspective, aging 

will have a significant impact. In particular, an increase in the very old 

population (people in their mid-80s and older) will be important because 

of their need for long-term care. In 2030, only the leading edge of baby 

boomers will have reached age 80, portending significant cost implications 

for Medicare and Medicaid in the years that follow. 

Americans’ use of and expenditures for health care services vary widely by 

geographic region. Much of the data showing regional differences was 

developed from Dr. Wennberg’s “small area analysis” research, which 

divides the country into 306 geographic areas (called hospital referral 

regions). Noting that the Medicare patient populations in these areas differ 

little in terms of illnesses, Dr. Wennberg attributes much of the variation in 

use of medical services to differences in an area’s resources and capacity 

to provide health care. 

To explain further, Dr. Wennberg divides medical practices into three 

categories of care: effective, preference-sensitive, and supply-sensitive. 

• Effective care refers to clinical services that have been proven to be 

efficacious with high benefit-risk ratios. As such, these services should be 

provided to patients whose diagnoses indicate the need for them. Annual 

eye exams for diabetics is one example of effective care. Dr. Wennberg’s 

research shows that from 1999 to 2000, 30 percent or more of diabetic 

Medicare patients did not receive these medically necessary eye exams, 

illustrating one of many instances of “underuse” of effective care across 

the United States. 

• Preference-sensitive care refers to clinical services that meet several 

conditions: two or more valid treatment options are available, the options 

Unexplained Variation in 

Medical Practices 

Nationwide Points to 

Quality and Efficiency 

Problems 
Page 11 GAO-04-793SP Health Care Forum 

carry different risks and benefits, and patient preference should 

determine which option is selected. Examples of preference-sensitive 

services are coronary artery bypass grafting (CABG) and back surgery. 

Misuse of these services occurs when patient preferences are not 

respected in determining the choice of treatment. 

• Supply-sensitive care refers to services for which there are few clinical 

guidelines so that the per capita use of these services is influenced by the 

available supply of resources. Among the Medicare population, most 

supply-sensitive services are used in treating patients with chronic illness. 

They include hospitalizations and use of intensive care units, revisits to 

doctors, referrals to specialists, and use of diagnostic tests and imaging 

procedures. Dr. Wennberg’s research shows that about 50 percent of the 

variation in discharge rates for patients hospitalized with any medical 

condition is explained by the supply of acute care beds. He noted that 

overuse of supply-sensitive care accounts for most of the variation in 

overall Medicare spending. 

Consistent with Dr. Reinhardt’s analysis, Dr. Wennberg’s studies show that 

greater per capita spending buys more supply-sensitive care. Areas with 

above-average spending have similar patterns of underuse of effective care 

and overall rates of expensive preference-sensitive care, including elective 

surgery. In other words, spending more per capita does not buy greater 

quality. What greater spending purchases is more frequent use of supplysensitive care in managing patients with chronic illness: more 

hospitalizations, more stays in intensive care, more visits, and more tests. 

The critical question is this: does greater spending purchase better health? 

Despite receiving a greater volume of care, Medicare populations living in 

higher-spending areas compared to those living in lower-spending areas do 

not have better health outcomes or experience greater satisfaction with 

care. In fact, populations living in high-spending areas appear to 

experience slightly worse outcomes. The results of this research suggest 

that, if we can achieve more consistency with medical standards of 

practice, vast potential exists to reduce spending without harm to patients 

while making gains in health outcomes. 
Page 12 GAO-04-793SP Health Care Forum 

To achieve a health care system that delivers more effective care—medical 

practice based on proven efficacy—our public and private payment 

systems need to be reformed. 

Dr. Wennberg offered a working hypothesis for he what terms “value 

health purchasing.” Health care spending can be reduced, he contends, 

using a three-pronged approach: 

• Identify efficient providers. Cost and utilization data can identify health 

care organizations (for example, hospitals and associated physicians) that 

use fewer supply-sensitive services than their peers in treating patients 

with chronic illness. 

• Reward efficient providers. These are providers who also address 

underuse of effective care and misuse of preference-sensitive care. For 

example, payers can reward providers who adhere to practice guidelines 

for effective care and ensure that patient preferences drive the demand 

for preference-sensitive treatment options. 

• Encourage inefficient providers to emulate best practices through 

payment incentives. For example, to discourage the provision of 

unnecessary care, payers could compensate providers managing patients 

with certain chronic conditions by paying fixed per-patient amounts based 

on historical actuarial costs rather than paying a fee for each service. 

Given the extent of variation in medical practices, Dr. Wennberg suggests 

that the nation’s leading medical institutions—academic medical centers—

would be a good place to begin the process of improving health care 

quality and efficiency. He notes that historically, these centers’ experience 

in translating basic science research into clinical practice has been 

inconsistent and that variations in health care delivery among the centers 

points to a lack of consensus even among the nation’s medical science 

leaders on the appropriate use of medical care. At the very least, he 

argues, federal policy should provide incentives for academic medical 

centers—the facilities that train and prepare health care professionals—to 

accept responsibility for the scientific basis of clinical decisionmaking. 

Dr. Milstein, commenting on this presentation, observed that Dr. 

Wennberg’s prescription for more efficient, higher quality care is 

consistent with the fundamentals of mainstream industrial procurement 

practices. These fundamentals anchor the new health care purchasing 

strategies that large employers are now adopting. They include (1) 

encouraging patients to use providers that, over time, have been costPayment Reforms Can 

Foster Delivery of 

Effective Care, Leading to 

Reduced Health Care 

Spending 
Page 13 GAO-04-793SP Health Care Forum 

efficient and have earned favorable quality ratings and (2) rewarding wellperforming providers for reaching world class benchmarks of longitudinal 

cost-efficiency and quality. He concluded that an ideal system is one in 

which incentives encourage providers to be highly self-conscious about 

their performance shortfalls and consumers to be performance-sensitive 

about their choice of providers and treatment options. 

Following the forum’s plenary sessions, participants attended one of four 

breakout sessions. At these sessions, they examined cost containment and 

value enhancement strategies that underlie many recent proposals to 

reform health care. The breakout sessions had the following themes: 

• Does a Focus on Making Consumers Sensitive to Health Care Costs Hold 

Promise for Containing Costs and Enhancing Value? (led by Paul B. 

Ginsburg, PhD) 

• Can We Control Costs and Enhance Value by Targeting Patients at 

Greatest Risk for Health Problems and High Expenditures? (led by 

Elizabeth A. McGlynn, PhD) 

• Can Payment Reforms and Other Structural Changes Bring About 

Reductions in Unwarranted Medical Practice Variation? (led by Mark D. 

Smith, M.D., MBA) 

• Is It Feasible to Control Spending without Compromising Scientific Gains 

by Managing Medical Technology and Innovation? (led by Stuart H. 

Altman, PhD) 

The following is a synthesis of these discussions. 

Many view “consumer sensitivity” to health care costs, along with 

increased access to user-friendly information, as key to reining in rising 

health care spending. Proponents of this view contend that insured 

consumers are insulated from the true costs of care and the information 

needed to make judicious decisions about the care they buy is essentially 

lacking. Participants discussed whether, under these circumstances, a 

focus on consumer health care decisionmaking could help achieve the 

necessary trade-offs to contain costs and maintain value. They concluded 

that linking consumer cost incentives to physician performance would be 

the most effective strategy but would necessitate efficiency measures that 

have not yet been developed. 

Participants Discuss 

Strategies for 

Controlling Costs and 

Enhancing Value in 

Health Care 

Does a Focus on Making 

Consumers Sensitive to 

Health Care Costs Hold 

Promise for Containing 

Costs and Enhancing 

Value? 
Page 14 GAO-04-793SP Health Care Forum 

Ideally, consumers become more sensitive to the costs of health care when 

they have incentives to make decisions based on value—the best quality 

for the lowest cost. Because this strategy depends on good consumer 

information, its implementation to date has been less than perfect. For 

example, some employers seek to steer their employees toward choosing 

the best value health plans, but data on health outcomes and best medical 

practices as well as an infrastructure to make this information readily 

available to the public are lacking. One participant gave the example of an 

employer that was considering offering its employees different costsharing arrangements. Under a baseline arrangement, the employer’s plan 

would pay 70 percent of an individual’s health care costs and the worker, 

30 percent; or the plan would pay 90 percent and the worker, 10 percent, if 

the individual called a plan-sponsored telephone number before seeking 

care to get advice and education on appropriate services and providers. A 

participant noted that this proposal assumes that there are extensive data 

on services available and the telephone staff can give good advice. 

Participants noted that workers may resist employers’ efforts to encourage 

cost-consciousness, as these efforts are seen as cost shifting (increasing 

workers’ share of costs) rather than as a step to improve value. Often the 

higher cost sharing is a compromise, but participants agreed that until 

tools are available to assess the quality of providers’ care, it is too early to 

use increased cost sharing as a means to achieve better value. 

Participants also made the following points, suggesting that conventional 

consumer cost incentives may not make sense for low-income, uninsured, 

and chronically ill individuals. Little research exists on the effectiveness of 

cost sharing (such as $1 or $2 copayments) for low-income individuals 

who are on Medicaid or the State Children’s Health Insurance Program 

(SCHIP) or who are uninsured. Some states’ Medicaid and SCHIP 

programs use scaled-down cost sharing, but there is less interest in cost 

incentives for this population both because the population is low income 

and because Medicaid and SCHIP are less constrained to use 

administrative procedures to control costs. When Massachusetts added a 

50-cent copayment per prescription for low-income individuals, the 

number of people who filled prescriptions in a homeless community 

plummeted. Participants discussed whether the measures of efficiency 

should be the same for low-income populations as for others. For 

example, the time needed to counsel a homeless population on healthy 

behaviors was much longer than for more affluent populations. 

Participants also discussed the nature of cost incentives for chronic care 

and other high-cost patients. One participant noted that much of health 

Increasing Consumer Cost 

Sensitivity Has Potential for the 

Future but Currently Suffers 

from Serious Data Limitations 

Consumer Cost Incentives 

Would Need to Be Modified for 

Low-Income, Uninsured, and 

Chronically Ill Populations 
Page 15 GAO-04-793SP Health Care Forum 

care spending is by high-cost patients who exceed their maximum for 

covered out-of-pocket costs. Moreover, many high-risk, chronically ill 

patients are loyal to certain providers, even if it costs them more to obtain 

care from these providers. Thus, cost incentives that encourage 

consumers to differentiate among plans and providers will have a limited 

effect on the behavior of these high-cost patients. Issues associated with 

high-cost patients are also discussed in the next breakout session 

summary. 

With regard to cost incentives, participants agreed that “it’s all about the 

doctor,” as consumers’ initial decisions about the care they receive 

typically start with advice they receive from their physicians. Participants 

discussed importance of focusing on physician performance rather than 

on hospital performance. One participant suggested developing “fuel 

efficiency” ratings with information on physicians’ costs and quality and 

translating this information into cost incentives for consumers to choose 

the more efficient physicians. He said that a few large purchasers are 

moving in this direction. Another reason to focus on physicians, he said, is 

that measures of hospital efficiency can be linked to physicians’ ratings. 

For example, some hospitals may charge more than twice as much as 

other hospitals for an MRI; if these costs were built into physicians’ 

ratings, physicians would be induced to affiliate with the more efficient 

hospitals. 

Participants noted the need to address the reality of patients’ strong 

affiliation with their physicians. A participant shared an example of a 

Kentucky employer that had provided its workforce information on costs 

and quality at 14 Louisville-area hospitals; even with such information 

available, 40 percent of patients the employer covered went to the highcost, low-quality hospitals. The employer now has plans to link hospital 

performance information to differential cost-sharing plans, making 

workers pay steep cost differences if they choose the lower-performing 

hospitals. According to one participant, the employer in this example has 

“already lost the battle,” because patients typically make hospital choices 

on the basis of their physicians’ affiliation with particular hospitals. As a 

practical matter, however, he noted that it is easier to get data on hospitals 

than physicians, which is why many health plans and employers have 

started with cost incentives linked to hospitals rather than physicians. 

Incentives Could Be More 

Effective If Focused on 

Physicians 
Page 16 GAO-04-793SP Health Care Forum 

Participants were skeptical about the potential in the near term to develop 

measures of physician performance, as these measures would require 

medical experts to arrive at a consensus about whether a given treatment 

was necessary or elective. For example, as one participant noted, many 

would agree that the use of Viagra (and drugs like it) is elective and thus a 

potential candidate for higher cost sharing, but achieving a consensus on 

other treatments was not as clear-cut. While one participant said any given 

health problem can be placed on a spectrum, with variable out-of-pocket 

costs depending on relative efficiency, another responded that this would 

lead to an “abyss.” For example, even erectile dysfunction drugs in some 

circumstances could be determined to reduce other medical or mental 

health costs. Similarly, for back surgeries, it is unclear whether “adding 

two screws to the spine,” for example, is an effective treatment. 

Participants also noted that a good efficiency measure needs to adjust for 

hospitals or physicians that take high-risk patients or providers will avoid 

risky patients. However, there is debate on how good today’s risk 

adjusters are and whether, in addition to risk, longitudinal efficiency 

measures also need to be adjusted for unavoidable social costs, such as 

uncompensated care, and for training expenses, such as those incurred by 

teaching hospitals. 

One participant noted that health plans already have consumer cost 

incentives for prescription drugs. Plans can steer their beneficiaries’ 

purchases to specific drugs through the use of a formulary—that is, a list 

of prescription drugs around which health plans create incentives for 

physicians to prescribe and beneficiaries to choose. Many plans have three 

tiers of cost sharing based on a patient’s choice to use a generic, 

formulary, or nonformulary drug. Several participants agreed that tiered 

cost sharing for drugs was acceptable because having tiers informed the 

consumer about the drug’s relative cost-effectiveness without denying 

coverage altogether. 

A small fraction of the population accounts for a substantial share of total 

health care spending, due to these patients’ high use of services, the high 

costs of their care, or both. While some of these people are acute care 

patients, such as trauma victims or certain newborns, others have chronic 

conditions, such as renal failure, asthma, and diabetes. Regardless of the 

source of their illness, these groups of patients have ongoing needs and 

place continual demands on the health care system. Participants in this 

session discussed whether strategies targeted at the chronically ill 

population could lead to reductions in health care spending and quality 

improvements overall. 

Linking Cost Incentives to 

Appropriate Care Is Difficult 

without Consensus on What 

Services and Treatments Are 

Discretionary 

Can We Control Costs and 

Enhance Value by 

Targeting Patients at 

Greatest Risk for Health 

Problems and High 

Expenditures? 
Page 17 GAO-04-793SP Health Care Forum 

The group noted that a focus on managing chronic illnesses could improve 

patients’ health care quality for at least two reasons. First, the nation’s 

delivery systems are designed primarily for acute, episodic care, but 

chronically ill patients need continuous and coordinated care, as well as a 

focus on preventive services, self-care, and adoption of healthful 

behaviors. Stated one participant, “The best way to not die of a heart 

attack is to not have the heart attack in the first place.” Second, current 

research shows that patients do not receive the most effective care known. 

Work by RAND has shown that appropriate care is provided to patients 

only about half the time. The current system does not effectively meet the 

needs of people with chronic illness, and this contributes to less than 

optimum value for the very patients that rely most heavily on the health 

care system. Meeting the needs of chronically ill patients could improve 

the quality of care they receive and their outcomes but could also increase 

costs. The group recognized that improving value for these patients would 

require improving quality, decreasing costs, or some combination of both. 

The group also recognized that the burden of illness is not the only factor 

driving health care costs, noting that Dr. Wennberg’s seminal work on 

regional differences in the use of medical services shows that wide 

variation is not explained by differences in medical diagnosis. Relating this 

phenomenon to caring for the chronically ill, the group noted the cost and 

value implications associated with the three categories of care classified 

by Dr. Wennberg—effective (care proven clinically effective), preferencesensitive (care involving trade-offs because more than one treatment 

exists and each may result in different outcomes), and supply-sensitive 

(care based more on the capacity to provide services than on medical 

knowledge or evidence). On the one hand, the group postulated, policies 

aimed at managing supply-sensitive care could have the most promise for 

reducing expenditures but may be the most difficult to implement 

politically. On the other, policies that encourage the practice of effective 

care—ideal from the standpoint of quality—could raise spending for some 

services and lower it for others but would also be difficult to implement, 

owing to the small number of clinical practices for which there is rigorous 

established evidence. Following this last point, the group focused the bulk 

of its remarks on the challenges associated with encouraging effective 

clinical care. 

The group determined that to achieve a value-driven health care system, it 

is necessary to have (1) better information about the services provided 

and outcomes of care to assess value, (2) incentives to provide the most 

effective care known, (3) public awareness of the impact of lifestyle and 

personal health behaviors on the costs of care, and (4) an authoritative 

A Focused Strategy on Chronic 

Care Could Improve Value, but 

May Not Reduce Costs 

Systematic Data, Payment 

Reforms, Health Education, 

and Authoritative Standards 

Needed to Achieve Value 
Page 18 GAO-04-793SP Health Care Forum 

source of reference for the public, providers, and payers on what 

constitutes effective care. These translated into the need to address the 

following key areas: 

• Systematic data: Participants noted that better clinical information and 

better information technology are needed to create incentives, enhance 

transparency, and ensure accountability in health care. The development 

of such information involves two steps: (1) information systems would 

need to be built, perhaps starting with data on high-risk patients whose 

care by multiple providers would require an infrastructure of compatible 

systems, and (2) support for the public reporting of information, which 

would include addressing antitrust laws that now inhibit efforts to share 

utilization and outcome data on the care delivered by a community’s 

physicians, hospitals, and other health care providers. The group 

recognized that building an information infrastructure would be expensive 

and would need to be viewed as a public good and social investment. 

Ideally, there should be a central, independent mechanism for setting 

standards, policies, and regulations and public support for developing the 

infrastructure, although multiple private sector entities could participate 

in developing the systems. It would be logical to begin the design and 

development of information systems with a focus on chronically ill 

patients since they have the most frequent contact with the health system, 

but over time, the information systems would be diffused to the larger 

population. 

• Payment reforms: Participants noted that in the current environment, 

incentives are lacking to provide certain types of cost-effective care. For 

example, physicians paid under a fee-for-service arrangement generally 

need a medical “event,” such as a visit or a procedure, to get paid for care. 

Usually, insurers do not pay physicians solely to counsel patients or 

coordinate their care, services that are particularly important for 

chronically ill patients. Furthermore, if a group of clinicians in a hospital 

want to change a care process, it is difficult to move resources between 

the different parties that are each paid separately (for example, hospitals 

and physicians), in addition to the challenge of freeing resources that have 

already been allocated in line with existing processes. Participants also 

discussed the need to create financial incentives to foster the use of 

effective care. For physicians, incentives could include increased 

payments or loans to reward the use of information technology; for 

patients, they could include reduced copayments or deductibles to reward 

good health habits and cooperation in permitting use of personal health 

care information. 
Page 19 GAO-04-793SP Health Care Forum 

• Health education: Steps to improve health quality would need to be 

accompanied by a sustained health education campaign, such as the one 

conducted over many years on smoking. People should be made more 

aware of the need to improve health quality and how their lifestyle and 

other choices affect the outcomes and costs of their health care. For 

example, to combat the obesity problem, the public could receive 

information on the “body mass index,” explaining how higher levels are 

related to costs of care. 

• Authoritative standards: The group determined that practicing effective, 

evidence-based medicine and encouraging it through payment reforms 

required an authoritative body of experts to develop and promulgate 

standards of practice. These standards, based on science and expert 

consensus, would guide clinical decisionmaking and payers’ 

determination about whether services claimed were medically necessary. 

In addition, the standards would be linked to tort reform: as long as the 

standards were followed appropriately, a clinician would not be subject to 

litigation. The group believed this standard-setting body should first focus 

on high-cost, high-use patients and on obvious opportunities for quality 

improvements. Some participants contended that more than standards are 

needed to address the problem of wide variability observed in medical 

practices, as studies by RAND show that even where there are agreedupon standards, appropriate care is provided only about half the time. 

Issues associated with medical practice variation are also discussed in the 

next breakout session summary. 

Studies show that the rates at which patients receive physician office care, 

surgical procedures, and hospital care vary extensively across the country 

without clinical explanation. Health care outcomes—such as mortality, 

quality of life, and medical errors—similarly vary. Leading experts, such as 

professors Reinhardt and Wennberg, contend that for much of U.S. health 

care, supply drives demand. In other words, higher-than-average utilization 

of a particular procedure may occur in an area where the technology or 

specialists performing the procedure are in abundance. Dr. Wennberg 

estimates that such supply-sensitive care accounts for much of the 

regionally high service use in Medicare and that reducing high use to levels 

seen in low-use regions would result in about a 30-percent reduction in 

Medicare spending. Patient preferences for certain procedures and 

services also contribute to variability in health care use rates. Participants 

in this session discussed whether better outcome data for providers and 

patients to make clinical decisions and the restructuring of payment 

Can Payment Reforms and 

Other Structural Changes 

Bring About Reductions in 

Unwarranted Medical 

Practice Variation? 
Page 20 GAO-04-793SP Health Care Forum 

systems to reward quality and efficiency could achieve desired health care 

system reforms. 

Participants agreed that the systematic collection of clinical outcome data 

is fundamental to building a health care system that promotes efficiency, 

decreases the use of unnecessary procedures, and improves quality. With 

longitudinal data, analysts can begin to develop quality and efficiency 

measures that providers, patients, and payers can use to make and reward 

the best clinical decisions. Better outcome data could, for example, 

identify which patients are suitable for organized chronic disease 

management programs and where the provision of unnecessary care could 

be reduced. Such data could be used to guide patients’ health care 

decisions, particularly when care alternatives are available without a clearcut choice. For example, one participant contended that less than a third 

of male patients with severe prostate problems preferred surgery once 

informed of the risks and trade-offs. 

The group also observed that more outcome data could not only help 

inform case-by-case clinical decisions but also strengthen market forces. 

For example, making comparative data available to providers and patients 

about costs and clinical outcomes could help channel patients toward the 

most efficient practitioners. On this basis, payment systems could be 

restructured to reward the best value of care. Several participants 

suggested that providers’ payments and patients’ insurance copayments 

could be aligned with quality and efficiency data to pay more for delivering 

higher quality efficiently. Many managed care plans use such an incentive 

to contain prescription drug costs: patients can choose to pay more for a 

branded drug and less for a generic equivalent. Participants suggested that 

insurers could similarly decrease or waive patients’ insurance copayments 

if they participated in a shared decisionmaking process with their 

physician and relied on efficacy and quality data in opting for treatment. 

The group agreed that effective change strategies will not only require the 

collection of better health outcome data but will also require that those 

that exercise control over clinical and cost decisions—health care 

systems, hospitals, physicians, and patients—be made accountable and 

rewarded, when appropriate. Participants agreed that assigning 

accountability for cost and clinical decisions is as challenging as it is 

important, because there are multiple parties that have decisionmaking 

control. 

• Health care systems: Participants noted that variation in the degree to 

which health care systems are organized makes it difficult to assign 

Reducing Medical Practices 

That Are Inconsistent with 

Quality and Efficiency Will 

Depend on Collecting Better 

Clinical Outcome Data 

Accountability for Clinical 

Decisionmaking Involves 

Several Parties to Varying 

Degrees 
Page 21 GAO-04-793SP Health Care Forum 

accountability at a “system” level. One participant noted that some health 

care systems were too loosely organized to permit credible accountability. 

Another noted that too many of the relevant decisions were controlled by 

physicians rather than plans. 

• Hospitals: Participants agreed that in principle, hospitals could be an 

appropriate party to hold accountable for constraining health care supply 

in that they hire physicians, “build beds,” and invest in technology—all of 

which offer potential avenues for influencing cost and clinical 

decisionmaking. If data were available to determine what constitutes an 

“appropriate hospitalization,” a hospital could be paid a fixed amount that 

reflects the number of hospitalizations expected for its patient base, 

regardless of how many beds it uses. However, perverse payment 

incentives and lack of leverage in certain instances suggest that hospitals 

alone cannot assume accountability for optimal clinical decisionmaking. 

One participant observed that hospitals generally do not have control over 

the prescribing behavior of their attending physicians. Participants also 

discussed the increasing number of procedures—orthopedic surgeries, 

endoscopies, and mammographies, for example—that are now being done 

in physicians’ offices, thereby decreasing the influence that hospitals have 

over these and other inpatient procedures. The group agreed that other 

procedures are performed for which hospitals could be appropriately held 

accountable for quality or appropriateness, such as CABGs and other 

surgeries. 

• Physicians: Like other breakout session participants, this group 

determined that physicians were the appropriate party to hold 

accountable for a number of clinical decisions and costs. According to 

one participant, general practitioners in the United Kingdom receive 

substantial bonuses for quality and efficiency. She suggested that a similar 

“pay for performance” model could be applied in the United States, under 

which physicians who referred patients for fewer procedures that result 

from excess capacity, such as CT-scans and MRIs, could be financially 

rewarded. Other participants disagreed and warned that strategies 

designed to curtail the provision of health care services carry with them 

the risk of a backlash, if it appears that providers are being rewarded for 

denying care. One participant asked, “Would people be comfortable 

paying more for less?” Another participant suggested that doing so would 

send the wrong message: “Why pay doctors to do things right, rather than 

not pay them if they do things wrong?” 

• Patients: One participant noted that although physicians were an obvious 

party to hold accountable for clinical decisionmaking, patients themselves 

were important in the process. In principle, if comparative quality and 
Page 22 GAO-04-793SP Health Care Forum 

efficiency data were available to patients, financial incentives, such as 

lower copayments, could steer patients toward using the appropriate 

physician, hospital, or health plan. This could result in a spillover effect: 

as more patients choose these providers, the providers would have 

incentives to perform better. Another participant noted that the use of 

data to influence patient choice assumes rational decisionmaking on the 

part of the patient, but in many cases, acutely ill patients must make 

decisions quickly that may be more emotionally based. The group agreed 

that as a practical matter, the lack of adequate comparable data today 

limits the ability to link incentives to patients’ decisions. 

Participants emphasized that regardless of who is held accountable for 

clinical and cost decisions, a “one-size-fits-all” approach to payment 

incentives will not work. Incentive strategies should be structured 

differently for inpatient and outpatient services, specialty care and primary 

care, and other groupings. Payment restructuring would need to reflect 

variation within the existing payment systems and be tailored to 

differences among payers—such as Medicare, Medicaid, and private 

insurance—and their covered populations. 

Participants noted that a data-driven reform strategy to improve health 

care quality and efficiency depends on an information technology (IT) 

infrastructure that is virtually nonexistent today. In particular, the 

necessary level of technological sophistication to gather, monitor, and 

securely transmit data does not widely exist at the physician office level. 

Without appropriate IT resources, office-based physicians are likely to 

have difficulty expeditiously recording the information that is needed for 

outcomes research and applying the findings of such research to their own 

practices. On a systemwide scale, differences in payment methods will 

require more IT sophistication to implement structural changes. 

Policymakers are looking at the role of technological advancements as an 

important driver of future spending growth. Although some technologies 

can achieve savings—for example, by reducing hospital stays—the 

increase in utilization that results from technology advances has generally 

offset any related savings. Finding appropriate limits on technology 

development and use is problematic, however, as such limits may deny 

patients improvements in health care quality, such as life-extending care. 

In light of these trade-offs, participants discussed the difficulty of 

assessing technology’s net impact on health care spending and the lessons 

this holds for controlling its use. 

Implementation Issues Make 

the Prospect of a Value-Based 

Health Care System a Longterm Goal 

Is It Feasible to Control 

Spending without 

Compromising Scientific 

Gains by Managing 

Medical Technology and 

Innovation? 
Page 23 GAO-04-793SP Health Care Forum 

Acknowledging that technological change accounts for a significant share 

of health care inflation, participants addressed the question, “Have we 

been getting our money’s worth?” The group agreed that technology’s 

contributions over the last 20 years—new pharmaceuticals, diagnostic 

imaging, and genetic engineering, among others—have been, on the whole, 

of significant value to the nation’s health. However, on a case-by-case 

basis, the use of high-tech procedures to improve health and prolong life 

may be of questionable value when the technology to be used is very 

expensive and odds for the patient to have a good outcome are very low. 

For example, one participant noted a case in which a 92-year-old cardiac 

patient underwent bypass surgery and received a heart-valve replacement 

but died 2 months later from pneumonia. Participants agreed that the 

general tendency in this country is to treat patients with available 

technology when there is the slightest chance of benefit to the patient, 

even though the costs may far outweigh the benefit to society as a whole. 

Other countries do not spend as much at the end of life. The group also 

agreed, however, that no one would choose to go back to the 1980s 

technology over that of today’s, despite all its inefficiencies. But, asked 

one participant, “Can we figure out how to get more efficient?” 

The group determined that a big problem in using technology efficiently 

was a lack of information, developed and disseminated systematically, on 

which patients, providers, and payers could make good health care and 

cost trade-off decisions. They noted that progress in the discipline of 

technology assessment has not kept pace with medical technology 

advancements. The medical community has not invested in IT—such as 

the adoption of computerized patient records—despite the potential for 

patient safety improvements and savings through administrative 

simplification. The reason, contended one participant, is that market 

forces have not driven IT investment in same way that they have driven 

investments in pharmaceutical research and diagnostic imaging 

equipment. Nevertheless, today’s employers, who finance a substantial 

share of the health care of the privately insured population, are seeking 

more information on health care technology costs and benefits. At the 

same time, the technology industry has been thwarting efforts by public 

payers to assess their products on the basis of cost-effectiveness. Some 

participants cited the need for government investment and direction, 

through grants and reimbursement policies. The group determined that 

without greater transparency and knowledge about technologies’ benefits 

relative to their cost, technology will continue to “test positive” as a major 

cost driver. 

Difficult to Determine 

Technology’s Impact on 

Spending Because Systematic 

Assessment of Costs and 

Productivity Offsets Is Lacking 
Page 24 GAO-04-793SP Health Care Forum 

The group noted that the conventional controls to rein in technology use 

focus on supply, as supply is a primary factor driving health care demand. 

For example, formularies are lists of drugs developed by health plans to 

control the use of expensive drugs. Formularies favor the use of the 

generic equivalents of brand-name drugs on the assumption that generics 

are, more or less, equally effective and, being less expensive than branded 

drugs, are thus more cost-effective. Similarly, certificates of need (CON) 

are a regulatory measure some states use to limit the diffusion of high-tech 

equipment, such as MRIs and CT-scans. CON requirements enable states to 

limit expensive technology to a few strategically located facilities and help 

even out the distribution of resources across locations. 

Efforts to use cost-effectiveness as a criterion for deciding when and 

whether to use medical technology have had mixed success. Participants 

noted that many entities try to do their own cost-effectiveness analyses, 

but there is a lot of duplication of effort and their efforts are typically 

impeded by incomplete or otherwise less than robust data. For example, 

one participant noted that health plans developing formularies each seek 

information on the cost-effectiveness of various drugs, but outside of the 

drug companies, no one—not even the Food and Drug Administration 

(FDA)—has access to the data needed to conduct these analyses 

effectively. 

Much of the discussion focused on the need for a central function, 

independent of the industries, that would assess health care technologies 

beyond the level of the safety and efficacy analyses that FDA conducts. 

Some participants favored the establishment of a public (that is, 

government) entity, whereas others supported a public-private 

partnership, modeled after the National Quality Forum (a consortium of 

businesses and not-for-profit organizations that do studies on building a 

“business case” for quality). As part of the discussion of barriers to 

centralization, several participants cited the reining in or elimination by 

the Congress of government entities tasked with assessing technology or 

promulgating practice guidelines, such as the Agency for Healthcare 

Research and Quality and the Office of Technology Assessment. 

The group agreed that a major barrier to advancing technology assessment 

is the technology industry itself. Better information on cost-effectiveness, 

participants noted, may not be in the financial interest of a company 

whose drug or device is not judged cost-effective. Other barriers, a 

participant noted, come from institutional providers and individual 

practitioners. Ideally, hospitals and physicians will use quality 

measurement—outcomes and effectiveness data—to foster best medical 

Controlling Use of Technology 

Faces Barriers to Change 
Page 25 GAO-04-793SP Health Care Forum 

practices. In fact, providing feedback data to physicians—for example, on 

their prescribing behavior compared to that of their peers—has been a 

powerful tool in bringing the practice patterns of “outlier” physicians in 

line with an appropriate norm. At the same time, physicians and hospitals 

have raised methodological concerns about the soundness of quality 

measurement initiatives, given that flaws exist in the age and 

completeness of the data collected and in the adjusters used to take 

patients’ severity of illness into account. Participants noted that debate 

about what is an acceptable level of imperfection can often derail quality 

measurement initiatives. 

The group concluded that the cost and productivity offsets associated with 

technology use could not be determined systematically without 

widespread IT use and improvements. It also determined that the 

government would need to assume a key role in supporting IT 

development. However, until such IT capabilities are in place, incentives 

must be developed for providers and patients to use new high-tech 

procedures prudently, or health care expenditures will continue to 

escalate at ever-increasing speed with serious consequences for the 

nation’s economy. 

Several common themes emerged from the four breakout sessions, despite 

their focus on different health care reform strategies. Collectively, 

participants’ observations affirmed the position that in today’s health care 

sector, there are few incentives for providers and consumers to be prudent 

in their ordering and use of health care services, too little transparency 

with regard to the value and costs of care, and inadequate accountability 

to ensure that health care plans and providers meet standards for 

appropriate use and quality. The groups essentially concluded that these 

problems cannot be solved overnight and that it will require committed, 

long-term resolve and a more highly evolved information infrastructure to 

help policymakers and the public understand the need to move beyond the 

status quo. 

To this end, the Comptroller General has argued for adopting a systematic 

approach to assessing health care reform proposals. GAO therefore 

created a framework that includes a comprehensive set of criteria for the 

Congress to consider as it evaluates proposed health care reforms. GAO’s 

framework incorporates comments made by forum participants in an 

extensive discussion following the Comptroller General’s presentation on 

health care system challenges; it is constructed around the dimensions of 

cost, access, quality, and implementation. (See table 1.) 

Comptroller General 

Presents Criteria for 

Evaluating Health 

Care Reform 

Proposals 
Page 26 GAO-04-793SP Health Care Forum 

Table 1: Framework for Evaluating Health Care Reform 

Dimension Criterion 

Cost: Does the proposal help to ensure: •sustainable growth in public and private sector health care expenditures? For 

example, 

•are Medicare and Medicaid reform efforts aligned with the nation’s long-term 

fiscal outlook? 

•are health care financing policies compatible with the efforts of U.S. companies 

to compete in global markets? 

 •efficient production and consumption of health care resources, including 

•economical pricing of services? 

•incentives for providers to make prudent medical decisions based on benefit 

and cost? 

•consumer sensitivity to the benefits and costs of health care services? 

 •that government tax incentives do not have unintended consequences? 

 •that government financing meets the nation’s most critical health care needs? 

Access: Does the proposal help to ensure: •guaranteed access to essential health care coverage, including 

•catastrophic loss protection? 

•children’s preventive health care services? 

 •an insurance market that adequately pools risk and offers alternative levels of 

coverage? 

Quality: Does the proposal help to ensure: •care that meets acceptable standards, including 

•lowering the occurrence of medical errors? 

•medical practices based on scientific evidence? 

•limiting disparities in treatment for all patients? 

Implementation: Does the proposal help to 

ensure: 

•the development of an information infrastructure that provides prompt and reliable 

data to monitor cost, quality, and system integrity? 

 •transition to a new structure that effectively mitigates potential disruptions and any 

new demands on resources and affected individuals? 

 •oversight and enforcement mechanisms for effective accountability? 

 •reforms that consumers can easily adapt to and understand? 

Source: GAO 

Ideally, health care reform proposals will ultimately provide and align 

incentives, foster transparency, and ensure accountability. The reality is 

that comprehensive reforms may need to be incremental in order to 

minimize disruptions and facilitate political consensus. The hope is that 

the framework can guide us through an orderly process of debate. 
Page 27 GAO-04-793SP Health Care Forum 

At the forum’s conclusion, participants were polled on 14 statements 

concerning the nation’s health care system. A consensus on these views 

was neither hoped for nor expected—with the exception of the last 

statement asking participants for a commitment to further public dialogue 

on health care reform issues. The results in table 2 are based on the 

confidential responses of two-thirds of the participants. 

Participants Share

Views Through

Informal Poll 
Page 28 GAO-04-793SP Health Care Forum 

Table 2: Results of the Health Care Forum Poll 

Percentages 

Statement 

Strongly 

agree Agree

Neither agree 

nor disagree Disagree

Strongly 

disagree

The United States has a serious and structural fiscal 

imbalance that requires tough choices by policymakers. 76 21 3 — —

Patients need to be more active and informed participants in 

the decisionmaking process relating to discretionary and 

expensive medical procedures. 62 34 — 3 —

The U.S. health care system is characterized by both 

underuse of wellness and preventive care and overuse of 

high-tech procedures. 55 34 7 3 —

Defensive medicine is a significant problem that is caused by 

concerns about litigation. 24 38 21 17 —

The current health care system is unsustainable and requires 

significant reforms. 45 45 10 — —

Ten years ago, managed care was thought to be the answer 

to health care cost containment, but it no longer appears to 

offer a long-term solution to escalating costs. 24 28 7 38 3

Based on comparisons with other major industrialized nations, 

it appears that the United States is lagging in the areas of cost 

containment, health outcomes, and access to care. 32 39 14 7 7

Given the power of providers and the desires of insured 

consumers, market forces alone are unlikely to reasonably 

constrain health care costs. 39 29 11 21 —

Health care costs represent a growing burden among 

employers, especially given increasing global and domestic 

competition. 58 28 3 7 3

Although not equally available to all segments of the 

population, the highest quality health care is delivered in the 

United States. 11 29 14 32 14

The United States pays more than its fair share of R&D for 

new medical products and technologies. 24 44 17 10 3

In the long run, health policies may need to focus more on 

attaining a basic level of health care for all Americans than on 

providing expanded coverage for certain segments of the U.S. 

population. 28 55 17 — —

Ultimately, the division of responsibilities for health care 

access and financing—currently shared by the government, 

employers, and individuals—may need to be redefined. 18 57 14 11 —

I will continue participating in public discussions and debates 

that can help elevate the nation’s understanding of the longterm challenges posed by today’s health care financing and 

delivery systems. 90 10 — — —

Source: GAO analysis of Health Care Forum participant poll. 

Note: Percentages may not add to 100 due to rounding. 
Appendix I: Forum Agenda 

Page 30 GAO-04-793SP Health Care Forum 

9:00 a.m. Welcome and Introductions 

Dave Walker, Comptroller General of the United States 

Forum Participants 

9:15 a.m. GAO’s Health Care Framework

Dave Walker, Comptroller General of the United States

10:15 a.m. Break 

10:30 a.m. Plenary Session 1: The Cost Dimension 

Presenter: Uwe Reinhardt, James Madison Professor of Political 

Economy, Princeton University 

Respondent: Alice Rivlin, Senior Scholar, The Brookings Institution

11:30 a.m. Plenary Session 2: The Value Dimension 

Presenter: John Wennberg, Center for Evaluative Clinical Sciences, 

Dartmouth Medical School 

Respondent: Arnold Milstein, The Pacific Business Group on Health

12:30 p.m. Break 

1:00 p.m. Breakout Sessions 

Group 1: Consumer Cost Sensitivity 

Session Leader: Paul Ginsburg, President, Center for 

Studying Health System Change

Group 2: High-Cost Patients 

Session Leader: Elizabeth McGlynn, Associate Director, 

RAND Health, and Director of the Center for Research on 

Quality in Health Care

Group 3: Medical Practice Variation 

Session Leader: Mark Smith, President and CEO, 

California Health Care Foundation

Group 4: Technology Management 

Session Leader: Stuart Altman, Sol C. Chaikin Professor of 

National Health Policy, Brandeis University 

2:30 p.m. Break 

Appendix I: Forum Agenda 
Appendix I: Forum Agenda 

Page 31 GAO-04-793SP Health Care Forum 

2:45 p.m. Plenary Session 3: Breakout Session Conclusions 

Breakout Session Leaders

4:15 p.m. Opinion Poll and Wrap-up 

Dave Walker, Comptroller General of the United States 
Appendix II: Forum Faculty and Participants 

Page 32 GAO-04-793SP Health Care Forum 

Stuart H. Altman Sol C. Chaikin Professor of National Health Policy, Brandeis University 

Paul B. Ginsburg President, Center for Studying Health System Change 

Elizabeth A. McGlynn Associate Director, RAND Health, and Director of the Center for 

Research on Quality in Health Care 

Arnold Milstein Medical Director, Pacific Business Group on Health, and National Health 

Care Thought Leader, Willam M. Mercer Consulting 

Uwe E. Reinhardt James Madison Professor of Political Economy, Princeton University 

Alice M. Rivlin Director and Senior Fellow, The Brookings Institution 

Mark D. Smith President and CEO, California Health Care Foundation 

John E. Wennberg Director, Center for the Evaluative Clinical Sciences, Dartmouth Medical 

School 

Janice Angell Executive Director, Health and Benefits, 3M 

Jim Bentley Senior Vice President, Strategic Policy Planning, American Hospital 

Association 

Barbara Blakeney President, American Nurses Association 

Charles A. Bowsher Former Comptroller General of the United States, U.S. General Accounting 

Office 

Karen Davis President, The Commonwealth Fund 

Senator David F. Durenberger Chair, National Institute of Health Policy, 

University of St. Thomas and the University of Minnesota 

Appendix II: Forum Faculty and Participants 

Forum Faculty 

Forum Participants 
Appendix II: Forum Faculty and Participants 

Page 33 GAO-04-793SP Health Care Forum 

Harvey V. Fineberg President, Institute of Medicine of the National Academies 

Jeffrey L. Gabardi Senior Vice President, Policy, American Association of Health 

Plans/Health Insurance Association of America 

Tony Gamboa General Counsel, U.S. General Accounting Office 

Mary Grealy President, Healthcare Leadership Council 

Glenn Hackbarth Chairman, Medicare Payment Advisory Commission 

Bruce H. Hamory Executive Vice President and Chief Medical Officer, Geisinger Health 

System 

Randy Johnson Director, Human Resources Strategic Initiatives, Motorola, Inc. 

Chip Kahn President, Federation of American Hospitals 

Vincent Kerr Executive Vice President, Network and Clinical Solutions, UnitedHealth 

Group 

James R. Knickman Vice President, Research and Evaluation, The Robert Wood Johnson 

Foundation 

Carolyn J. Luckensmeyer President, America Speaks 

Randall Lutter Chief Economist, Food and Drug Administration, U.S. Department of 

Health and Human Services 

Mark Miller Executive Director, Medicare Payment Advisory Commission 

Donald Palmisano President, American Medical Association 

Robert D. Reischauer President, Urban Institute 

John Rother Director of Policy and Strategy, AARP 

Dallas L. Salisbury President and CEO, Employee Benefits Research Institute 

William J. Scanlon Director, Health Care Issues, U.S. General Accounting Office 

Leon H. Schellman Manager, United States Benefits, Procter & Gamble 
Appendix II: Forum Faculty and Participants 

Page 34 GAO-04-793SP Health Care Forum 

Gerald M. Shea Assistant to the President, Government Relations, American Federation of 

Labor and Congress of Industrial Organizations 

Jean Sheil Director of Family and Children’s Programs Group, Centers for Medicare 

& Medicaid Services, U.S. Department of Health and Human Services 

Henry E. Simmons President, National Coalition on Health Care 

Pete Smith President and CEO, Private Sector Council 

Ian D. Spatz Vice President, Public Policy, Merck and Company, Inc. 

A. Bruce Steinwald Director, Health Care, Economic and Payment Issues, U.S. General 

Accounting Office 

Louise Van Diepen Clinical Executive, U.S. Department of Veterans Affairs 

David M. Walker Comptroller General of the United States, U.S. General Accounting Office 

Andrew Webber President and CEO, National Business Coalition on Health 

Jessica Farb 

Hannah Fein 

A. Bruce Steinwald 

GAO Forum Managers 
Selected Bibliography 

Page 35 GAO-04-793SP Health Care Forum 

Altman, Stuart H., et al. “Escalating Health Care Spending: Is it Desirable 

or Inevitable?” Health Affairs (Web Exclusive, January 8, 2003). 

Altman, Stuart H., et al. “The Outlook for Hospital Spending.” Health 

Affairs, vol. 22, no. 6 (2003). 

Ginsburg, Paul B., et al. “Are Market Forces Strong Enough to Deliver 

Efficient Health Care Systems? Confidence is Waning.” Health Affairs, vol. 

23, no. 2 (2004). 

McGlynn, Elizabeth A., et al. “The Quality of Health Care Delivered to 

Adults in the United States.” New England Journal of Medicine, vol. 348, 

no. 26 (2003). 

Milstein, Arnold, and Nancy E. Adler. “Out of Sight, Out of Mind: Why 

Doesn’t Widespread Clinical Quality Failure Command Our Attention?” 

Health Affairs, vol. 22, no. 2 (2003). 

Reinhardt, Uwe E., et al. “U.S. Health Care Spending in an International 

Context.” Health Affairs, vol. 23, no. 3 (2004). 

Reinhardt, Uwe E. “Does the Aging of the Population Really Drive the 

Demand for Health Care?” Health Affairs, vol. 22, no. 6 (2003). 

Reinhardt, Uwe E., et al. “It’s the Prices, Stupid: Why the United States Is 

So Different From Other Countries.” Health Affairs, vol. 22, no. 3 (2003). 

Rivlin, Alice M. and Isabel Sawhill, eds. Restoring Fiscal Sanity: How to 

Balance the Budget. Washington, D.C.: Brookings Institution Press, 2004. 

Smith, Mark D., et al. “The Nonpoor Uninsured in California, 1998.” Health 

Affairs, vol. 19, no. 4 (2000). 

Wennberg, John E., and David E. Wennberg. “Perspective: Addressing 

Variations: Is There Hope for the Future?” Health Affairs (Web Exclusive, 

December 10, 2003). 

Wennberg, John E., et al. The Quality of Medical Care in the United State: 

A Report on the Medicare Program, The Dartmouth Atlas of Health Care 

1999. Chicago: American Hospital Association, 1999. 

Selected Bibliography 

(290348) 
The General Accounting Office, the audit, evaluation and investigative arm of 

Congress, exists to support Congress in meeting its constitutional responsibilities 

and to help improve the performance and accountability of the federal 

government for the American people. GAO examines the use of public funds; 

evaluates federal programs and policies; and provides analyses, 

recommendations, and other assistance to help Congress make informed 

oversight, policy, and funding decisions. GAO’s commitment to good government 

is reflected in its core values of accountability, integrity, and reliability. 

The fastest and easiest way to obtain copies of GAO documents at no cost is 

through the Internet. GAO’s Web site (www.gao.gov) contains abstracts and fulltext files of current reports and testimony and an expanding archive of older 

products. The Web site features a search engine to help you locate documents 

using key words and phrases. You can print these documents in their entirety, 

including charts and other graphics. 

Each day, GAO issues a list of newly released reports, testimony, and 

correspondence. GAO posts this list, known as “Today’s Reports,” on its Web site 

daily. The list contains links to the full-text document files. To have GAO e-mail 

this list to you every afternoon, go to www.gao.gov and select “Subscribe to e-mail 

alerts” under the “Order GAO Products” heading. 

The first copy of each printed report is free. Additional copies are $2 each. A 

check or money order should be made out to the Superintendent of Documents. 

GAO also accepts VISA and Mastercard. Orders for 100 or more copies mailed to a 

single address are discounted 25 percent. Orders should be sent to: 

U.S. General Accounting Office 

441 G Street NW, Room LM 

Washington, D.C. 20548 

To order by Phone: Voice: (202) 512-6000 

TDD: (202) 512-2537 

Fax: (202) 512-6061 

Contact: 

Web site: www.gao.gov/fraudnet/fraudnet.htm 

E-mail: fraudnet@gao.gov

Automated answering system: (800) 424-5454 or (202) 512-7470 

Jeff Nelligan, Managing Director, NelliganJ@gao.gov (202) 512-4800 

U.S. General Accounting Office, 441 G Street NW, Room 7149 

Washington, D.C. 20548 

GAO’s Mission 

Obtaining Copies of 

GAO Reports and 

Testimony 

Order by Mail or Phone 

To Report Fraud, 

Waste, and Abuse in 

Federal Programs 

Public Affairs